If you do your own bookkeeping, some software will automatically generate monthly financial statements based on the data you input. Then, when you file your taxes, you get financial statements from your annual tax accountant.
That’s a great start, but do you know what these statements are telling you? Do you know why you need them?
At CSI Accounting & Payroll, we’ve done monthly accounting for small businesses for over 50 years. We’ve talked to thousands of small business owners who have wanted to know:
- What is a financial statement for a business? Which ones do you get from an annual tax accountant and a monthly accountant?
- What do financial statements tell you?
- When are you ready for monthly financial statements?
Annual and Monthly Financial Statements for Businesses
Most businesses need to file annual taxes, so most will get annual financial statements. However, many businesses don’t get monthly statements, and this is considered a step up from just getting annual statements.
That’s why we’re starting with talking about annual statements (as the basics) and making our way up to talking about monthly statements (as a strategic advantage).
Annual Financial Statements
Most small businesses get annual financial statements. These can often include the following:
- Income Statement (Profit and Loss Statement)
- Balance Sheet
- Statement of Cash Flows
- Statement of Changes in Equity
- Other documents necessary for tax filings, such as:
- Depreciation schedules
- Inventory valuation reports
- Details of deductible expenses
Monthly Financial Statements
If you want to go beyond annual statements, you can get monthly statements from software (based on your bookkeeping inputs) or from a monthly accountant (who handles your bookkeeping, taxes, and more for you). These can include the following:
- Income Statement (Profit and Loss Statement)
- Balance Sheet
- Other statements at your request*
*From monthly accountants, not most software.
Between Income Statements and Balance Sheets, most small business owners are satisfied with the insight they receive. However, there are also other statements that can give you different information.
If you want other statements, software can’t help you. However, because monthly accountants have your financial data and are humans who are ready to help, they can make additional statements for you – and walk you through what they mean – as part of an add-on consulting project.
What Financial Statements Can Tell You
Financial statements are crucial in making informed business decisions – especially monthly statements, which are timely snapshots of your financial data that can help you year-round.
Informed Business Decisions
Let’s get into the specifics of what the statements mentioned above can tell you, plus how your accountant can use them to offer advice.
- Income Statement (Profit and Loss Statement). This will show if your business is making a profit – the overall performance. It’s largely used to find opportunities to increase profitability.
- Balance Sheet. This is a snapshot of how you’re doing at the time of the statement. It’s used to find your net value, debt, liquidity, assets, and changes to certain areas.
- Statement of Cash Flows. This shows more of your liquidity. It’s used to determine whether you have enough money to cover expenses – especially as inventory and seasonality come into play.
- Statement of Changes in Equity. This shows your changes in owner equity of the business over time. It’s mostly for stakeholders to see how the business’s financial position has changed.
Performance Evaluation
When used together with advice from a professional, you can see an overview and specifics of how your business is performing. Measure your efficiency and profitability with confidence, and compare it all to your competitors and industry standards.
Business Funding and Valuation
Financial statements help you know what your business is worth when it comes time to sell or find funding. After all, people who want to invest in your business want to know that they’re making a sound investment.
Tax Planning
With the guidance of a professional, you can use financial statements for tax planning. This is part of the benefit of monthly accounting – it’s the only accounting solution that can offer complete, year-round tax strategy to legally minimize your tax liability.
Want to learn more about the basics of financial statements? This is only part of our Small Business Accounting Kit, which is free to download here:
When You’re Ready for Monthly Financial Statements
Since monthly financial statements take a deeper dive into your finances throughout the year, it may sound like all small businesses should get monthly statements – but that’s not necessarily the case.
Chances are, most small businesses start their operations before the very end of the year. When they get their annual statements, they usually have at least a couple of months’ worth of data on them. That can be enough information for a business that doesn’t have much financial data yet.
However, if a small business wants monthly financials and expects them at the end of their first month, they wouldn’t be getting much information. That means a monthly accounting service wouldn’t be a good use of their money yet.
Make sure you’re always using the right accounting solution for the current state of your business! This will ensure you get the right amount of value out of whichever solution you choose.
Track Your Business’s Performance Year-Round
Now that you know which financial statements come from annual tax accountants and monthly accountants, what they tell you, and when to get monthly statements, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about the advice a monthly accountant can provide by clicking the image below:
